Rules. They’ve always been with us. In fact, when archeologists found evidence of the first written language deep in a cave in Mesopotamia (circa 3200 B.C.) it’s reported the researchers translated that primitive attempt to communicate as follows: “No writing on this wall!” With one primitive scrawl, rules were born. And they’re not going away.

Not only have rules existed since man dragged his knuckles across the African savannah, the more advanced man and his activities have become, the more copious and cumbersome are the rules that decree how to go along to get along.

Nowhere is that more true than in modern business where rules are especially rampant. As companies become successful, rules governing process and procedure are implemented in an effort to codify those activities that initially helped the company grow. And the more a company grows, the more rules it institutes.

The crippling residue of this “race to rules” is, you guessed it, bureaucracy, that mindless web of institutionalized dictums that dictate employee behavior and company procedures with almost robotic precision. All of which leads one to ask, do we need these rules? Are they effective?

The answer to both questions is “yes.” Rules are necessary and can be very beneficial because they promote structure, organization, conformity and consistency. Rules also help coordinate the activities of different departments into one, unified, dynamic whole. Without rules chaos would surely follow.

Sometimes a little chaos is fine. But there is a downside and contradiction inherent in these rules: The more numerous and effective they are, the more they stifle innovation, creativity and risk-taking, all valuable employee attributes necessary for a company to attain and retain success.

The trouble is, rules can evolve into an endless river of paperwork that can clog the system and block any new thought or action. Then, before you know it, employees obey rules simply out of tradition. Their unspoken inner mantra is, “That’s the way we have always done it. Don’t ask questions.” Complying with the rules becomes the sole objective, rather than performance and progress.

Certainly rules can stave off enduring chaos, but there are also times when chaos is welcome since it can breed progress. What’s need is the ability to understand and channel that chaos into a positive force can often mean the difference between success and failure for a leader and a company. The real question is how that fine line can be drawn.

This conflict between the rules of conformity and the freedom of creativity calls for a delicate balance that is rarely resolved in the business world. The rules of conformity (and those who support them) almost always end up winning even if the company loses.

The successful leader discovers that, in practice, there are two kinds of rules:

“Rules of direction”“Rules of performance”

Rules of direction dictate to people exactly what the task is and how to perform it to achieve a specific objective. On the other hand, rules of performance set forth the objective and define guidelines outlining what the organization will and will not do to achieve it. The striking difference is that the latter allows those charged with achieving the objective the freedom to determine the what and how part. Both rules promote structure and organization, but only the rules of performance allow for any innovation or creativity.

The Successful Approach is to Wisely Use Both Rules

My belief is that for a leader and a company to be successful, both types of rules need to be employed. There are certain repetitive functions that require constancy and consistency, but there are other activities that demand flexibility and freedom of action. The key is to be able to mix and match these two rules in a way that neither fosters chaos nor suppresses innovation.

This can be accomplished when you understand the difference between “dictates” and “guidelines.” Rules that dictate are for those you don’t trust. Guidelines are for those you respect. Give a person a rule and you take away thought. Give a person a guideline and you stimulate responsibility.

When I was working for the life insurance company, LifeUSA, we established “guidelines” for company direction and “rules of performance” for each department. The guidelines were simple and wide-ranging and once they were established for the company and each department agreed to the rules of performance, employees were free to figure out the best way to achieve the objective and implement their plans.

Here is how to link these two crucial rules.

Obviously the overriding objective was for the company to survive and be successful. The “guiding operational principles” established to achieve the objective were that the company would never give up control of distribution, product development, administrative support (IT) or customer service.

Can you identify the rules implicit in these guidelines? They were simple but clear: We would sell our policies only through sales-agents tied directly to the company. No bankers or investment firms. Products would be priced and developed by internal actuaries who understood the philosophies of the company. Technical and administrative support and services would not be outsourced to a company over which we had no control. When a policyholder called our customer service, they would not be switched to someone in India.

Imagine the freedom! Once these company guidelines were communicated and agreed to, each department was empowered to develop its own “rules of performance” that outlined actions that would be taken to perform its designated function. The departments could develop any process or procedure thought to be most effective, just so long as they did not violate the established guidelines of the company.

Under this type of bifurcated rule system there was both control and freedom. Management had established guidelines that could not be violated and individuals had the freedom to offer and decide the best course of action to achieve the overall objective. It all comes down to a simple – but workable – philosophy. Rules of direction ruin. Rules of performance guide.

And the Moral of the Story …

You can’t avoid the rule that you are going to have to live with rules, but that does not mean that you can’t make rules work for you. The key to being a successful leader depends on understanding the different types of rules and the strength and weakness of each. Successful leaders realize that rules of direction send a clear signal of lack of trust, but when a leader has the confidence to rely on rules of performance, a message of respect and trust is communicated to the followers. And trust given will be trust returned; something essential for any leader to be successful. That’s the rule.

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This was true of the great empires. They all learned, for better or sometimes worse, that individuals and institutions can make prodigious contributions to history by shaping the future, but when they failed to continue to make history, they became history: We know them now for what they did, not what they are doing.

ABOUT BOB MacDONALD

Founder of LifeUSA Insurance and retired CEO of Allianz Life, N.A., Bob MacDonald regularly blogs with timely, hard-hitting comments on almost every business subject from entrepreneurism to better management, smart business leadership, government and politics, and of course, the life insurance industry.

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Bob MacDonald, founder of LifeUSA Insurance and retired CEO of Allianz Life, N.A., regularly blogs with timely, hard-hitting comments on almost every business subject from entrepreneurism to better
management, smart business leadership, government and politics, and of course, the life insurance industry.